Earnings Release  Q1 FY 2020October 22, 2019 
 
 Business ResultsQ1 FY 2020 
 
 Q1 FY 2020 HIGHLIGHTS   
 
 Q1 Fiscal Year 2020  Organic Sales Growth  Organic Volume Growth  Core EPS Growth  Adjusted Free Cash Flow Productivity  Q1 FY ‘20  +7%  +4%  +22%  91%  Currency Neutral Core EPS Growth  +24% 
 
 Q1 FY 2020 RESULTSORGANIC SALES GROWTH  Organic sales were driven by volume, pricing and mix. Organic volume up +4%, pricing +1% and mix +2%.  
 
 Q1 FY 2020 RESULTSCORE EPS GROWTH  Core gross margin +190 basis pointsCore operating margin +260 basis pointsTotal productivity savings +160 basis points 
 
 Q1 FY 2020 RESULTSCURRENCY-NEUTRAL CORE EPS GROWTH  Core gross margin ex-FX +200 basis pointsCore operating margin ex-FX +260 basis points 
 
 Business Segment Results and HighlightsQ1 FY 2020 
 
 +3% Pricing, +4% MixGlobal value share grew +0.3 versus year agoNet Earnings: Volume growth, positive mix and pricing were partially offset by brand communication investments, production line start-up costs and currency headwinds.  Q1 FY 2020 RESULTSBEAUTY SEGMENT 
 
 Hair Care organic sales grew mid-single digits versus year ago. North America and Europe regions both grew organic sales mid-single digits behind innovation led volume growth and strong retail execution. Greater China Hair Care organic sales were flat with positive mix from innovation offset by channel dynamics. Skin & Personal Care organic sales grew mid-teens versus year ago with broad based growth across all segments. China grew double digits across Olay Skin, SK-II and Personal Care. North America Skin and Personal Care grew high single digits driven by premium product innovation and pricing on Deodorants.   Q1 FY 2020 RESULTSBEAUTY HIGHLIGHTS 
 
 +1% Pricing, flat Mix Global value share declined 0.4 points versus year ago. Net Earnings: Positive legal settlement and productivity savings were offset by currency headwinds, volume decline and lower margin product mix hurt.  Q1 FY 2020 RESULTSGROOMING SEGMENT 
 
 Grooming organic sales increased low single digits versus year ago. Shave Care organic sales were flat. Europe Shave Care grew organic sales low single digits behind premium innovation. Greater China Shave Care grew organic sales high single digits driven by innovation and favorable product mix. Latin America grew high single digits driven by innovation and devaluation-driven pricing. North America Shave Care declined mid-single digits with premium innovation growth offset by volume decline from continued decline in shaving incidents and competitive activity. Appliances sales increased low single digits driven by premium innovation mix and pricing.  Q1 FY 2020 RESULTSGROOMING HIGHLIGHTS 
 
 +1% Pricing, +2% MixGlobal value share increased 0.3 points versus year agoNet Earnings: Volume growth, pricing, and positive mix were partially offset by higher overhead costs related to Merck.  Q1 FY 2020 RESULTSHEALTH CARE SEGMENT 
 
 Oral Care organic sales increased high single digits versus year ago. North America and Greater China grew high single digits driven by Power toothbrushes, premium toothpaste innovation and pricing. Personal Health Care organic sales increased double digits versus year ago due to innovation-driven volume and positive mix with strong growth in the respiratory segment.  Q1 FY 2020 RESULTSHEALTH CARE HIGHLIGHTS 
 
 Flat Pricing, +1% MixGlobal value share increased 0.7 points versus year agoNet Earnings: Innovation-driven volume growth, commodity tailwinds and productivity improvements were partially offset by more profitable, but lower margin product mix hurt and brand communication investments.  Q1 FY 2020 RESULTSFABRIC & HOME SEGMENT 
 
 Fabric Care organic sales grew high single digits versus year ago. Broad based growth led by premium innovation-driven volume growth across laundry and fabric enhancers. Greater China and Asia Pacific delivered double digit organic sales growth, North America delivered high single digit organic sales growth and Europe delivered mid-single digits organic sales growth.Home Care organic sales increased high single digits versus year ago with growth across all segments: Dish, Air and Surface. Sales increased from innovation-driven volume, superior retail execution and pricing.  Q1 FY 2020 RESULTSFABRIC & HOME HIGHLIGHTS 
 
 +2% Pricing, +1% MixGlobal value share declined 0.5 points versus year agoNet Earnings: Volume, pricing, productivity savings and commodity tailwinds were partially offset by brand communication investments and currency headwinds.  Q1 FY 2020 RESULTSBABY, FEMININE and FAMILY CARE SEGMENT 
 
 Baby Care organic sales increased low single digits driven by strength of premium tier offerings and pricing partially offset by continued softness on mid-tier and value tier diapers due to competitive activity. Continued strong growth on Pant forms across markets. Feminine Care organic sales increased high single digits versus year ago led by growth on premium innovation and favorable product mix from Always Discreet growth.Family Care organic sales increased high single digits versus year ago led by innovation-driven volume and commodity based pricing partially offset by negative product/size mix.  Q1 FY 2020 RESULTSBABY, FEMININE and FAMILY CARE HIGHLIGHTS 
 
 FY 2020 Guidance 
 
   FY ‘20  Organic Sales Growth (increased)  +3% to +5%   All-in Sales Growth (increased)  +3% to +5%   Increased organic sales growth guidance to +3% to +5%Increased all-in sales growth to +3% to +5%Includes a modest negative impact from foreign exchange, which is largely offset by a positive net impact from acquisitions and divestitures.  FY 2020 GuidanceSALES 
 
   FY ‘20  Core EPS Growth (increased)  +5% to +10%  All-in EPS Growth (increased)  +225% to +243%  Increased Core EPS growth to +5% to +10% Core effective tax rate range of 17% to 18% Increased all-in EPS of +225% to +243% with the Gillette Shave Care carrying value adjustment in the base period (Q4). Impact in base is $3.03 on FY and $3.02 in Q4.  FY 2020 GuidanceEARNINGS PER SHARE 
 
  Increased Free Cash Flow Productivity: 95% Capital Spending, % Sales: 4.5% to 5.0%Dividends: Over $7.5BDirect Share Repurchase: $6 to $8B  FY 2020 GuidanceCASH GENERATION AND USAGE 
 
 Significant deceleration of market growth ratesSignificant currency weaknessSignificant commodity cost increasesAdditional geo-political disruptions and economic volatility  FY 2020 GuidancePOTENTIAL HEADWINDS NOT INCLUDED IN GUIDANCE 
 
 Forward Looking Statements  Certain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to factors outside of our control, such as natural disasters and acts of war or terrorism; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare;  (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s decision to leave the European Union) and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; and (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited.  For additional information concerning factors that could cause actual results and events to differ materially from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K reports.  
 
The Procter & Gamble Company Regulation G Reconciliation of Non-GAAP Measures

In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP measures used in Procter & Gamble's October 22, 2019 earnings call, associated slides, and other materials and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on underlying business trends (i.e. trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non-GAAP measures described below are used by Management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of Management. Certain of these measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measure, but rather as supplemental information to our business results.  These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. The Company is not able to reconcile its forward-looking non-GAAP cash flow and effective tax rate measures because the Company cannot predict the timing and amounts of discrete items such as acquisition and divestitures, which could significantly impact GAAP results.

The measures provided are as follows:
1.
Organic sales growth — page 3
2.
Core EPS and currency-neutral Core EPS — page 4
3.
Core gross margin and currency-neutral Core gross margin – page 5
4.
Core operating profit margin and currency-neutral Core operating profit margin — page 5
5.
Adjusted free cash flow productivity — page 5

Organic sales growth*:  Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions and divestitures, the impact from the July 1, 2018 adoption of new accounting standards for “Revenue from Contracts with Customers”, the impact from India Goods and Services Tax changes (which were effective on July 1, 2017), and foreign exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis.

The Core earnings measures included in the following reconciliation tables refer to the equivalent GAAP measures adjusted as applicable for the following items:
•
Incremental restructuring:  The Company has had and continues to have an ongoing level of restructuring activities.  Such activities have resulted in ongoing annual restructuring related charges of approximately $250 - $500 million before tax. In 2012 the Company began a $10 billion strategic productivity and cost savings initiative that included incremental restructuring activities.  In 2017, the Company communicated details of an additional multi-year productivity and cost savings plan.  This results in incremental restructuring charges to accelerate productivity efforts and cost savings.  The adjustment to Core earnings includes only the restructuring costs above what we believe are the normal recurring level of restructuring costs.
•
Early debt extinguishment charges: In fiscal 2018, the Company recorded after-tax charges of $243 million, due to the early extinguishment of certain long-term debt. These charges represent the difference between the reacquisition price and the par value of the debt extinguished.
•
Transitional Impact of U.S. Tax Reform:  In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act").  This resulted in a net charge of $602 million for the fiscal year 2018. The adjustment to Core earnings only includes this transitional impact.  It does not include the ongoing impacts of the lower U.S. statutory rate on the respective years’ earnings.
•
Gain on Dissolution of the PGT Healthcare Partnership: The Company finalized the dissolution of our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceuticals Industries, Ltd (Teva) in the OTC consumer healthcare business, in the quarter ended September 30, 2018. The transaction was accounted for as a sale of the Teva portion of the PGT business; the Company recognized an after-tax gain on the dissolution of $353 million.
•
Shave Care Impairment: In the fourth quarter of fiscal 2019, the company recognized a one-time, non-cash, after-tax charge of $8.0 billion ($8.3 billion before tax) to adjust the carrying values of the Shave Care reporting unit. This was comprised of a before and after-tax impairment charge of $6.8 billion related to goodwill and an after-tax impairment charge of $1.2 billion ($1.6 billion before tax) to reduce the carrying value of the Gillette indefinite-lived intangible assets.
•
Anti-dilutive Impacts: The Shave Care impairment charges caused certain equity instruments that are normally dilutive (and hence normally assumed converted or exercised for the purposes of determining diluted net earnings per share) to be anti-dilutive. Accordingly, for U.S. GAAP diluted earnings per share, these instruments were not assumed to be concerted or exercised. Specifically, in the fourth quarter and total fiscal 2019, the weighted average outstanding preferred shares were not included in the diluted weighted average common shares outstanding. Additionally, in the fourth quarter of fiscal 2019, none of our outstanding share-based equity awards were included in the diluted weighted average common shares outstanding. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for non-GAAP earnings per share.
We do not view the above items to be part of our sustainable results, and their exclusion from core earnings measures provides a more comparable measure of year-on-year results. These items are also excluded when evaluating senior management in determining their at-risk compensation. Management views the following non-GAAP measures as useful supplemental measures of Company performance and operating efficiency over time.

Core EPS and currency-neutral Core EPS*:  Core earnings per share, or Core EPS, is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated.  Currency-neutral Core EPS is a measure of the Company's Core EPS excluding the incremental current year impact of foreign exchange.

Core gross margin: Core gross margin is a measure of the Company's gross margin adjusted for items as indicated.

Currency-neutral Core gross margin: Currency-neutral Core gross margin is a measure of the Company's Core gross margin excluding the incremental current year impact of foreign exchange.

Core operating profit margin*: Core operating profit margin is a measure of the Company's operating margin adjusted for items as indicated.

Currency-neutral Core operating profit margin*: Currency-neutral Core operating profit margin is a measure of the Company's Core operating profit margin excluding the incremental current year impact of foreign exchange.

Adjusted free cash flow:  Adjusted free cash flow is defined as operating cash flow less capital spending and adjustments for items as indicated. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion.  Management views adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investment.

Adjusted free cash flow productivity*:  Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings adjusted for items as indicated.  Management views adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, allocating financial resources and for budget planning purposes.  The Company's long-term target is to generate annual free cash flow productivity at or above 90 percent.

* Measure is used to evaluate senior management and is a factor in determining their at-risk compensation.


1. Organic sales growth:
Three Months Ended
September 30, 2019
Net Sales Growth
  
Foreign Exchange Impact
  
Acquisition &
Divestiture Impact/Other*
  
Organic Sales Growth
Beauty
8%
  
2%
  
-%
  
10%
Grooming
(2)%
  
2%
  
1%
  
1%
Health Care
20%
  
2%
  
(13)%
  
9%
Fabric Care & Home Care
6%
  
1%
  
1%
  
8%
Baby, Feminine & Family Care
4%
  
1%
  
-%
  
5%
Total P&G
7%
  
2%
  
(2)%
  
7%
* Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.




Organic Sales
2-Year Stacked Progression


 
Total Company
Net Sales Growth
  
Foreign Exchange Impact
  
Acquisition/ Divestiture Impact*
  
Organic Sales Growth
Average
JAS 2017
1%
  
-%
  
-%
  
1%
  
JAS 2018
-%
  
3%
  
1%
  
4%
2.5%
OND 2017
3%
  
(1)%
  
-%
  
2%
  
OND 2018
-%
  
4%
  
0%
  
4%
3%
JFM 2018
4%
  
(4)%
  
1%
  
1%
  
JFM 2019
1%
  
5%
  
(1)%
  
5%
3%
AMJ 2018
3%
  
(2)%
  
-%
  
1%
  
AMJ 2019
4%
  
4%
  
(1)%
  
7%
4%
JAS 2018
-%
  
3%
  
1%
  
4%
  
JAS 2019
7%
  
2%
  
(2)%
  
7%
5.5%
* Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures for all periods, the impact from the July 1, 2018 adoption of new accounting standards for "Revenue from Contracts with Customers", the impact of India Goods and Services Tax implementation in FY 2018, and rounding impacts necessary to reconcile net sales to organic sales.



Organic Sales
Guidance
Total Company
  
Net Sales Growth
  
Combined Foreign Exchange &
Acquisition/Divestiture Impact/Other*
  
Organic Sales Growth
FY 2020 (Estimate)
  
3% to 5%
  
-%
  
+3% to +5%
* Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.


2. Core EPS and currency-neutral Core EPS: 
 
Three Months Ended
September 30
 
2019
  
2018
Diluted Net Earnings Per Share
$1.36
  
$1.22
   Incremental Restructuring
0.01
  
0.03
   Gain on Dissolution of PGT Partnership
    
(0.14)
   Rounding
    
0.01
Core EPS
$1.37
  
$1.12
Percentage change vs. prior period
22%
    
Currency Impact to Earnings
0.02
    
Currency-Neutral Core EPS
$1.39
    
Percentage change vs. prior period Core EPS
24%
    

Note – All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.



Core EPS
Prior Quarters

 
JAS 18
JAS 17
OND 18
OND 17
JFM 19
JFM 18
AMJ 19
AMJ 18
Diluted Net Earnings Per Share from Continuing Operations, attributable to P&G
$    1.22
$    1.06
$    1.22
$    0.93
$    1.04
$    0.95
$   (2.12)
$    0.72
Incremental Restructuring
0.03
0.03
0.03
0.02
0.02
0.04
0.06
0.14
Early Debt Extinguishment Charges
      
-
      
0.09
Transitional Impact of U.S. Tax Act
      
0.24
  
0.01
  
(0.02)
Gain on Dissolution of PGT Partnership
(0.14)
              
Shave Care Impairment
            
3.02
  
Anti-dilutive Impacts
            
0.14
  
Rounding
0.01
            
0.01
Core EPS
$    1.12
$    1.09
$    1.25
$    1.19
$    1.06
$    1.00
$    1.10
$    0.94
Percentage change vs. prior period
3%
  
5%
  
6%
  
17%
  
Currency Impact to Earnings
0.09
  
0.09
  
0.09
  
0.08
  
Currency-Neutral Core EPS
$    1.21
  
$    1.34
  
$    1.15
  
$    1.18
  
Percentage change vs. prior period Core EPS
11%
  
13%
  
15%
  
26%
  




Core EPS
Guidance
Total Company
Diluted EPS Growth
Impact of Incremental
Non-Core Items*
Core EPS Growth
FY 2020 (Estimate)
+225% to +243%
(220)% to (233)%
+5% to +10%
* Includes the gain on the dissolution of the PGT Healthcare partnership and Shave Care impairment in fiscal 2019 and year-over-year changes in incremental non-core restructuring charges.






3. Core gross margin:
 
Three Months Ended
September 30
 
2019
2018
Gross Margin
51.0%
49.2%
   Incremental Restructuring
0.3%
0.3%
   Rounding
  
(0.1)%
Core Gross Margin
51.3%
49.4%
Basis point change vs. prior year Core margin
190
  
Currency Impact to Margin
0.1%
  
Currency-Neutral Core Gross Margin
51.4%
  
Basis point change vs prior year Core margin
200
  


4. Core operating profit margin: 
 
Three Months Ended
September 30
 
2019
2018
Operating Profit Margin
24.1%
21.3%
   Incremental Restructuring
0.2%
0.4%
Core Operating Profit Margin
24.3%
21.7%
Basis point change vs. prior year Core margin
260
  
Currency Impact Margin
-%
  
Currency-Neutral Core Operating Profit Margin
24.3%
  
Basis point change bs. Prior year Core Margin
260
  



5. Adjusted free cash flow productivity (dollar amounts in millions): 

Operating Cash Flow
Capital Spending
U.S. Tax Act Payments
Adjusted Free Cash Flow
Net Earnings
Adjusted Free Cash Flow Productivity
$4,169
$(1,079)
$215
$3,305
$3,617
91%